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A Three-Factor Model of Inclusive, Sustainable and Resilient Economic Development for Developing Countries

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A Three-Factor Model of Inclusive, Sustainable and Resilient Economic Development for Developing Countries Applied Economics and Finance Vol. 3, No. 4; November 2016 ISSN 2332-7294 E-ISSN 2332-7308 Published by Redfame Publishing URL: http://aef.redfame.com A Three-Factor Model of Inclusive, Sustainable and Resilient Economic Development for Developing Countries Samuel O. Okafor1, Kenneth Jegbefumwen2, Olisaemeka D. Maduka1& Ambrose C. Okeke1 1 Department of Economics, NnamdiAzikiwe University, Awka, Anambra State, Nigeria. 2 Department of Economics, Novena University, Kwale, Delta State, Nigeria. Correspondence: Samuel O. Okafor, Department of Economics, NnamdiAzikiwe University, P.M.B. 5025, Awka, Anambra State, Nigeria. Received:June 12, 2016 Accepted:June 27, 2016 Available online:July 7, 2016 doi:10.11114/aef.v3i4.1723 URL: http://dx.doi.org/10.11114/aef.v3i4.1723 Abstract Nigeria had adopted various development plans in order to achieve MDGs.Achievement of MDGs is crucial to effective implementation of SDGs agenda aimed at fostering inclusive, sustainable and resilient economic development. In spite of these efforts, the Nigerian economy is still characterized by low capital formation, chronic unemployment, a large percentage of the population living on primary sector and negligible savings. Indeed, Nigeria’s performance in MDGs was quite unimpressive. This is partly attributable to inappropriate human capital theory of economic growth on which these development plans were based. Therefore, this study focused on building a model of inclusive, sustainable and resilient economic development which would yield potent factors and describe activities that could link human capital investment with aggregate economic activities to induce economic development with full participation of target population. The study covered the period, 1981 - 2014. Data were sourced from Central Bank of Nigeria, National Bureau of Statistics and World Development Indicators. Data were analyzed using exploratory factor analysis technique. Study revealed that minimum wage, girl-child education and special intervention fund were factors which influenced the relationship among human capital, real GDP and economic development. It was concluded that the outcome of this study which is a three-factor model of inclusive, sustainable and resilient economic development is essentially a human capital theory of economic development capable of linking the different sectors of the economy. It was recommended, inter alia, that a dynamic employment policy would involve economic empowerment of women through job reservation in paid labour. Keywords: three-factor model, inclusive, sustainable, resilient ,economic development, developing countries 1. Introduction Sustainable, inclusive and resilient economic development which is a new course charted by world leaders at the United Nations Sustainable Development Summit on September 25, 2015 marked a shift fromMillennium Development Goals (MDGs) agenda to Sustainable Development Goals (SDGs) agenda (Clark, 2015).SDGs absorbed fromMDGs eight anti-poverty targets set to be achieved by 2015. The achievement of these targets would certainly pave the way for the implementation of SDGs agenda. The new SDGs have broader policy implications for addressing the root causes of poverty and the universal need for development that works for all people. Nigeria is still grappling to cope with the problems posed by MDGs. The performance of Nigeria in the implementation of MDGs agenda is unimpressive (Lawal, Obasaju& Mathew, 2012). The effective implementation of MDGs agenda is crucial to the achievement of the objectives of SDGs agenda which would ultimately foster inclusive, sustainable and resilient economic development. Successive governments in Nigeria had adopted various development plans including VISION 2010, National Economic Empowerment and Development Strategy(NEEDS), 7-Point Agenda, VISION 20:2020, Subsidy Reinvestment Programme(SUREP) etc. within the framework of MDGs agenda to serve as driving force to achieve these laudable projects (Lawal et al., 2012). Despite these efforts, Nigeria has remained grossly underdeveloped. The Nigerian economy is still characterized by low capital formation, chronic unemployment, a large percentage of the population living on primary sector and negligible savings which were identified by Kumar and Sharma (2014) as common features of underdevelopment.This is a clear indication that the development plans were not effective for linking the different sectors of the Nigerian economy and ensuring full participation of the target 57 Applied Economics and Finance Vol. 3, No. 4; 2016 population in the development process. For any development plan to be effective, it must be based on a theoretical framework which would establish interrelationships among human capital, aggregate economic activities (measured by real gross domestic product [real GDP]), and physical quality of life indices (PQLI) as proxies for economic development. This explains why human capital theory of economic growth, commonly applied for analysis of economic development, could not provide active constructs for designing effective development strategies. The inadequacy of human capital theory of economic growth for detailed analysis of economic development is glaring in Table 1 showing contractions in the relationship between GDP per capita (GDPPC) and human development indices (HDI) forNigeria and five other countries. Table 1. GDPPC and HDI Compared Between Nigria and Five African Countries For the Period 2014 Table 1 shows that Nigeria had greater GDPPC and yet lower HDI than Algeria, Tunisia, South Africa, Ghana and Angola. Okafor, Jegbefumwen and Ike (2016) had also found human capital theory of economic growth grossly inadequate for a detailed analysis of impact of human capital investment on economic development. Therefore, there is a need to develop a theory which can establish interrelationships among human capital, real GDP and economic development. Only a human capital theory of economic development can yield constructs to serve as active variables to induce human capital and real GDP to contribute to economic development. Efforts were focused on a detailed analysis of interrelationships among human capital, real GDP and economic development indicators in order to identify latent factors to constitute major constructs of a new theory on the basis of which a comprehensive development plan could be devised for achieving inclusive, sustainable and resilient economic development for Nigeria and indeed, developing countries. The study was undertaken with the broad objective of building a model which would yield active policy instruments for facilitating the achievement of inclusive, sustainable and resilient economic development for Nigeria and indeed, other developing economies. Specific objectives are to :( 1) Identify the factors influencing the relationships among human capital investment, growth and economic development (2)Determine the constellation of active variables of the factors which contribute significantly to the inter-correlations among human capital investment, growth and economic development. The study revolved around the answering of the following research questions: (1) What are the factors which influenced the relationship among human capital investment, growth and development in Nigeria? (2) What is the constellation of active variables of the factors which contribute significantly to the inter-correlations among human capital investment, growth and economic development in Nigeria? The results of this study were considered significant as they would be found useful by policy-makers in developing countries for reviewing the strategies of their development plans and for setting new guidelines to ensure effective implementation of these plans for the actualization of SDGs. 2. Review of Related Literature This section deals with the review of related literature. The review has been discussed under the following subheadings. - Theoretical literature review - Empirical literature review - Summary of review 2.1 Theoretical Literature Review 2.1.1Theories on Economic Growth Endogenous Growth Theory- Endogenous growth theory states that a high saving rate leads to a high growth rate. Endogenous growth theory lays emphasis on different growth opportunities in physical capital and knowledge capital. 58 Applied Economics and Finance Vol. 3, No. 4; 2016 This theory is predicated on the premise that there are substantial external returns to capital; the major assumption is that better technology is produced as a by product of capital investment. It specifically assumes that technology is proportional to the level of capital per worker in the economy overall, and that technology is labour-augmenting (Dornbusch, Fischer, & Startz, 2011). This theory has applicability in the Nigerian situation where there is generally low saving and low technology base Solow Growth Model-This model is an extension of Harrod-Domar model with the addition of the second factor, labour, and the introduction of a third independent variable, technology. Solow growth model is based on the assumption of diminishing returns to labour and capital separately and constant returns to both factors jointly. Technological progress became the residual factor explaining long-term growth,and its level was assumed to be exogenously determined, that is, independently of all other factors. Solow model is expressed in the form: Y = Kα (AL) 1- α where Y is the gross domestic product, K is the stock of capital (which may include human capital as well as physical
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